November 2009 Redacted FOMC Statement

September
2009
November
2009
Comments

Information received since the
Federal Open Market Committee met in August suggests
that economic activity has picked up following its severe
downturn
.

Information received since the
Federal Open Market Committee met in September suggests
that economic activity has continued to pick up.

Little change; they see the rebound as
continuing.

Conditions in financial markets have improved further, and activity in the housing sector
has increased.

Conditions in financial markets were roughly unchanged, on balance, over the
intermeeting period.
Activity in the housing sector has increased over recent months.

That said, the stock market has stopped
rallying. Does the FOMC only look at the stock market, and not notice how
much risky bond spreads have rallied?
Household spending seems to be stabilizing,
but remains constrained by ongoing job losses, sluggish income growth, lower
housing wealth, and tight credit.
Household spending appears to be expanding
but remains constrained by ongoing job losses, sluggish income growth, lower
housing wealth, and tight credit.
No change
Businesses are still cutting back on fixed
investment and staffing, though at a slower pace; they continue to make
progress in bringing inventory stocks into better alignment with sales.
Businesses are still cutting back on fixed
investment and staffing, though at a slower pace; they continue to make
progress in bringing inventory stocks into better alignment with sales.
No change

Although economic activity is likely to
remain weak for a time, the Committee anticipates that policy actions to
stabilize financial markets and institutions, fiscal and monetary stimulus,
and market forces will support a strengthening of economic growth and a
gradual return to higher levels of resource utilization in a context of price
stability.
Although economic activity is likely to
remain weak for a time, the Committee anticipates that policy actions to
stabilize financial markets and institutions, fiscal and monetary stimulus,
and market forces will support a strengthening of economic growth and a
gradual return to higher levels of resource utilization in a context of price
stability.
No change
With substantial resource slack likely to
continue to dampen cost pressures and with longer-term inflation expectations
stable, the Committee expects that inflation will remain subdued for some
time.
With substantial resource slack likely to
continue to dampen cost pressures and with longer-term inflation expectations
stable, the Committee expects that inflation will remain subdued for some
time.
No change.
The Fed assumes stagflation is not possible.
In these circumstances, the Federal Reserve
will continue to employ a wide range of tools to promote economic recovery
and to preserve price stability.
In these circumstances, the Federal Reserve
will continue to employ a wide range of tools to promote economic recovery
and to preserve price stability.
No change.
Why is this paragraph needed?

The Committee will maintain the target
range for the federal funds rate at 0 to 1/4 percent and continues to
anticipate that economic conditions are likely to warrant exceptionally low
levels of the federal funds rate for an extended period.
The Committee will maintain the target range
for the federal funds rate at 0 to 1/4 percent and continues to anticipate
that economic conditions, including low rates of
resource utilization, subdued inflation trends, and stable inflation
expectations
, are likely to warrant exceptionally low levels of
the federal funds rate for an extended period.
Gives us a clue as to when they will change
policy. Look at labor unemployment,
capacity utilization, current inflation readings, and future inflation implied
by TIPS.

To provide support to mortgage lending and
housing markets and to improve overall conditions in private credit markets,
the Federal Reserve will purchase a total of $1.25 trillion of agency
mortgage-backed securities and up to $200 billion of agency debt.
To provide support to mortgage lending and
housing markets and to improve overall conditions in private credit markets,
the Federal Reserve will purchase a total of $1.25 trillion of agency
mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt
purchases, while somewhat less than the previously announced maximum of $200
billion, is consistent with the recent path of purchases and reflects the
limited availability of agency debt.
The Committee will gradually slow the pace
of these purchases in order to promote a smooth
transition in markets and anticipates that they will be executed by the end
of the first quarter of 2010.
In order to promote a smooth transition in
markets, the Committee will gradually slow the pace of its
purchases of both agency debt and agency mortgage-backed
securities
and anticipates that these transactions will be
executed by the end of the first quarter of 2010.
No real change.
As previously announced, the Federal
Reserve’s purchases of $300 billion of Treasury securities will be completed
by the end of October 2009.
Treasury program is done.
The Committee will continue to evaluate the
timing and overall amounts of its purchases of securities in light of the
evolving economic outlook and conditions in financial markets.
The Committee will continue to evaluate the
timing and overall amounts of its purchases of securities in light of the
evolving economic outlook and conditions in financial markets.
No change.
Another useless paragraph.



The Federal Reserve is monitoring the size
and composition of its balance sheet and will make adjustments to its credit
and liquidity programs as warranted.
The Federal Reserve is monitoring the size
and composition of its balance sheet and will make adjustments to its credit
and liquidity programs as warranted.
No change.
Another useless paragraph.
Voting for the FOMC monetary policy action
were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth
A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P.
Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Voting for the FOMC monetary policy action
were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth
A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P.
Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
No change

Comments


1) No big deal on fewer Agencies being bought. But what if they decide to do the same to mortgage bonds? They see the bloat building up on the Fed’s balance sheet, and they are beginning to wonder how they will unwind it. The first part is easy, but it gets hard fast.

·
2) Gives us a clue as to when they will change policy. Look at:

o Labor unemployment

o Capacity utilization

o Current inflation readings

o Future inflation implied by TIPS

·
3) The FOMC appears to only look at the stock market when reading financial  conditions. Bond spreads have rallied.

·
4) The FOMC assumes that stagflation will not happen again, or that their quantitative easing does not put us in a Japan-style liquidity trap.

1 Comment

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